Most people working for major corporations and companies are well aware of the common employment benefits they can receive. This includes 401(k) plans, insurance plans, and vacation benefits. Often lost in these employee benefit packages are other lesser known or understood plans that employees never touch because they do not realize just how helpful these plans can be. One of these benefits is known as a flexible spending account.

What is a Flexible Spending Account?

Flexible spending accounts are a way to supplement health costs not covered by health insurance. This can be especially helpful to those with existing conditions such as diabetes and used as a good way to save money. Flexible spending accounts are actually simple programs to understand.

How Flexible Spending Works

At the beginning of each year, on or close to January 1, your boss or employer will ask if you would like to contribute money toward the flexible spending account for the year. If you say yes, then at the beginning of each pay period an equal portion of the amount you agreed to contribute will be taken out of your pay. This money is taken out before taxes and is never reported to the IRS, which can keep a good chunk of change in your wallet that you would normally lose due to taxes.

As medical expenses arise, you simply submit an Explanation of Benefits, proof of payment to whomever controls the flexible spending account for your company, and he or she will cut you a reimbursement check for everything you had to pay that was not covered by your health insurance. Practically everything is covered with a flexible spending account. Doctor fees, vasectomies, braces, you name it and it is more than likely eligible for reimbursement.

Dealing with Uncertainty

The hardest part of taking advantage of a flexible spending account is deciding how much to contribute. You have up to three months after the end of the year to claim any additional medical expenses before the money you contributed is lost forever. Should you not need any extra health reimbursement at all you will end up losing all the money you contributed. Some foresight is needed in deciding how much to contribute. You only get one chance to contribute to the flexible spending account.

Usually, you can make an extra contribution should you have a change in status such as a marriage or birth. If you are having a hard time trying to figure out how much to contribute then make a list of all the possible out of pocket medical expenses you could reasonably have and use that amount or just a bit less to be safe.
Flexible spending accounts mostly help those with preexisting conditions. However, everyone can take advantage of this extraordinary employee benefit. Chances are you will need to see a doctor for at least a regular check up once a year and need dental cleanings twice a year. With a little forethought, you can begin saving money each year.

As the name implies, a Health Savings Account (HSA) is not traditional medical coverage, where you purchase an insurance policy by paying a premium and renewing it periodically. Instead, it enables consumers to set aside funds for potential future health expenses on a pre-tax basis. The amount you set aside for medical expenses reduces your taxable income, bringing down your tax burden.